Business Service Provision

This resource is designed specifically for Unit 1 of the Edexcel BTEC National qualification, 'Introduction to Business'.

We often think of businesses in terms of producing goods - physical objects like coffee, milk, books, pottery, metal, paper, telephones, computers, CDs and so on. But many businesses exist not to provide any sort of good at all but are still classed as being 'in production'. What they produce is a service. Services are becoming more and more important in the national economy, indeed the majority of business activity is in the service sector.

How much business activity is in services? We can find out information like this by using the government's statistics service, the Office for National Statistics (ONS). (http://www.statistics.gov.uk)

The service sector contains a wide variety of different types of activity. We normally classify business activity into three sections - primary, secondary and tertiary.

• Primary business activity includes things like agriculture, mining, fishing and quarrying - the process of extracting raw materials from the earth.
• Secondary business activity includes the manufacturing industry - the processing of raw materials into semi-finished and finished goods: for example, steel production, car manufacturing, making circuit boards for electronic goods, washing up bowls, furniture and so on.
• Tertiary activity includes all activities that provide services including those to business as well as to the general public. This can include consultancy work, insurance, transport, warehousing, banking, Web hosting, travel agents and so on.

One specific aspect of service sector provision involves services that are used by the general public at large. Many of these services are provided on a different basis because of their importance. For example, health and education services are provided for the population as a whole by the state. The aim is to provide the best possible quality of service using taxpayers' money to fund its activities.

Public sector service provision such as health and education are called 'merit goods'. Merit goods are those goods that could be provided by the private sector but if they were, some people either might not be able to afford to access those services or may not see the need to set aside money to provide for such services themselves.

For example, some people may think that paying out £300 per month for health insurance was simply too much and anyway, they are never ill so it is just a waste of money. This view is fine until an accident happens or an illness strikes. In such cases, people need the treatment and might be in a position where they have to sell their personal possessions to pay for the hospital bills!

The government, therefore, provides these important services for the benefit of all. When we say that 'the government' provides these services, it is not really very accurate. The government might provide the funding for such services but there may be many different types of business activity involved in providing such services.

Because the public sector uses public money to fund its services, there are a number of issues surrounding how it uses this money.

There is now increasing scrutiny of the way in which hospitals spend our money. Two such examples are the National Audit Office (NAO)(http://www.nao.org.uk) and the National Institute for Clinical Excellence (NICE)(http://www.nice.org.uk/page.aspx?o=home).

Both these bodies monitor what is spent by different parts of the National Health Service and provide reports to government on their findings and their recommendations.

Scenario

Glivec is a drug that has been found to have some success in treating certain types of leukaemia patient. The development costs of many drugs such as this are very high.

The cost of treating one patient with this drug and prolonging that patient's life can cost up to £18,000 per year. Does that represent a good use of taxpayers' money?

If a business is contracted to work for the health service in providing a service, part of the contract with that business may be what is called a 'service level agreement' (SLA).

An SLA is a way of monitoring the levels of service provided by one organisation to another. SLAs may be one aspect of managing the quality of the service provision between organisations.

In the public sector, the business may be required to offer a service to the public, which is seen to be the most important aspect of its operation as opposed to making a profit. However, the provision of such a service will, of course, cost money.

Decisions about the price that the eventual user might have to pay for that service might be dependent on government policy. It could be felt that the service is so important that it will be provided free at the point of use; this is in effect using taxpayers' money to fund the service. If a price is put on the item, it might be expected that the service provider offers it either 'at cost' or 'below cost'.

At cost means that the price paid by the public will be the same as the cost of providing that service. Below cost means that the price paid will be less than the cost of offering the service.

One good example of these approaches is the sale of medical drugs and treatment prescriptions to the public.

Task 5

Use the links below to find out the following:

1. Find out the price of anti-smoking medicines such as patches and gum from a supermarket such as Tesco or Morrisons or from online retailers such as Chemist Direct(http://www.chemistdirect.co.uk/productsquicklink.asp?catid=255). (You can also access prices from supermarkets online if you cannot get into a supermarket easily.)
2. What is the standard prescription charge in the UK? See NHS charges(http://www.dh.gov.uk/assetRoot/04/10/69/10/04106910.pdf) [PDF, 104 KB]
3. What can you conclude from this information about the pricing strategy adopted in the NHS?

Image: Attempts to encourage smokers to give up is a service that can be provided by the government through the NHS. What might be the difference in the price paid by a patient getting a prescription from a doctor compared to the price they might have to pay if they voluntarily decided to give up smoking? Copyright: Stefanie L. stock.xchng